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Anadarko Continues Liquids Focus, Interest in Shale Plays

February 8, 2010
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Natural gas is good, but it's better when it has liquids along with it to juice profits while gas prices remain weak, Anadarko Petroleum Corp., among others, has found. Going forward, look for a continued emphasis at the company on liquids-rich onshore gas production as well as on oil in the offshore, Anadarko COO Al Walker said Tuesday.

"Liquids and oil are clearly a part of the equation for us," Walker told financial analysts during an earnings conference call Tuesday. "I think with most of what you'll see us do in 2010 onshore we have a bias towards gas that has a liquids enhancement. That's not to say that we won't drill things that don't have that, and clearly Marcellus [Shale] being one of those.

"But as we look into the deepwater we pretty much have an oil prospect inventory, and that is one of the real advantages of our prospect inventory in deepwater, whether it's in the U.S. or outside the U.S....We certainly have a bias in terms of price discovery in and around oil and believe that will help us quite a bit over the next five years in achieving some things today that very few of our peers can do."

Recently in the Greater Natural Buttes play in Utah the company brought online a cryogenic processing plant to replace a refrigeration plant. "The yield off of that is substantially better than the refrigeration plant we had there previously, and as we potentially increase production in the coming years from the Greater Natural Buttes, you can anticipate seeing more cryo potentially being built by us as a part of that in order to improve the liquids yield from that gas," Walker said.

The emphasis on gas liquids and oil continues a focus outlined during the company's third quarter earnings conference call (see NGI, Nov. 9, 2009).

Another area of interest in the onshore U.S. is gas shale plays such as the Marcellus, Haynesville and Eagle Ford. While shale plays are growing in importance to Anadarko, the gas they hold has yet to show up in the company's reserve bookings.

"We really have not been an active company to date with the booking of our shale plays," Walker said, "and I think in the coming years you'll see shale increasingly be a part of our reserve bookings, but for the most recent year it was less than 1%, which is probably a little different than some others."

An established international player, Anadarko could one day become an international shale gas player, but not anytime soon.

"We do see potential around the world in that type of play," Robert Daniels, vice president for worldwide exploration, said. "The real difficulty right now is the fiscal terms and the cost structure in these other more remote locations. You have to have a market to sell the gas into, and you have to have infrastructure because these are kind of manufacturing-type activities, and you have to have fiscal terms from the state that are quite different from what they're used to. And so there's a lot of work that's going to have to be done on all of those fronts to find an area that really works. It's one of those things that we keep our eye on for the future but at this point it's not something that we're actively pursuing and think that we'll be drilling wells in the next year by any means."

Anadarko had net income during the fourth quarter of $238 million (46 cents/share), which included special items that added $208 million (42 cents). In the year-ago period net income was $794 million ($1.69/share), including the addition of $826 million ($1.80) from special items. Despite higher oil prices the company was hurt by weaker natural gas prices driven by oversupply of the commodity. In the most recent quarter adjusted earnings per share were 4 cents while analysts had expected 3 cents.

Natural gas sales produced revenue of $776 million in the fourth quarter compared with nearly $1.09 billion in the year-ago period. Revenue from natural gas liquids was $171 million in the fourth quarter, up from $99 million in the year-ago quarter. Oil and condensate sales yielded revenue of more than $1.25 billion in the fourth quarter, up from $785 million in the year-ago quarter.

Anadarko added 314 million boe of proved reserves in 2009, before the effects of price revisions and divestitures, and incurred costs of approximately $4.66 billion associated with exploration and development. The company estimated its proved reserves at year-end totaled 2.3 billion boe. Anadarko ended 2009 with approximately 70% of its reserves in the "proved, developed" category and approximately 30% categorized as "proved, undeveloped." At year-end 2009 the company's product mix of proved reserves was made up of approximately 56% natural gas and 44% liquids.

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